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Debt Securities

Nigeria’s Asset to GDP Ratio Is low despite rise in Mutual Fund value

As Nigeria’s mutual fund asset value keeps trending towards the trillion-naira mark, data has shown that the country still ranks low in mutual fund to GDP ratio when compared to other countries.

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As mutual fund asset value in Nigeria keeps trending towards the trillion-naira mark, data from the Securities and Exchange Commission has revealed that the total asset under management of Nigerian mutual funds stood at N783.8 billion as at June 14, 2019. When analyzed by Quantitative Financial Analytics, it was discerned that the continuous increase in mutual fund investment value comes mostly from additional investor contributions.

The analysis also indicates that investors have poured about N195.1 billion into mutual funds since the beginning of the year, while about N57 billion has been withdrawn within the same period.

It is all about Money market funds

Investors keep loving their money market funds as much of the inflows went there, thereby increasing the percentage of money market fund asset in relation to the overall mutual fund asset value. 71% of mutual fund assets in Nigeria (representing N564 billion out of the N783 billion) was invested in money market funds. Only 3.3% of mutual fund assets were invested in equity exposed funds. This underscores the conservative disposition of investors in Nigeria.

[READ FURTHER: A guide to how Mutual Funds work in Nigeria]

In spite of Nigerians’ aversion to risk as indicated by their “over” allocation to money market funds, it is very encouraging to note that since 1991 when the first mutual fund was launched in Nigeria, mutual fund investment has remained virtually in the ascendency.

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Mutual Fund to GDP ratio Remains Low

Meanwhile, even though the growth in fund asset is commendable, Nigeria still ranks low in mutual fund to GDP ratio when compared to other African countries and globally. While the latest SEC released Summary of Mutual Fund Net Asset Value (NAV) puts total fund asset at N783 billion, Nigeria’s GDP stood at about N161 trillion as at first quarter of 2019, according to the National Bureau of Statistics. That translates to about $447 billion, at the rate of N360 to the Dollar. Those numbers translate to a 0.49% mutual fund asset to GDP ratio.

Information gathered from the World Bank shows that Nigeria has one of the lowest mutual fund to GDP (MF_GDP) ratio in Africa and even globally. According to the World Bank data, between 2011 and 2014, MF-GDP ratio in Nigeria remained constant at 0.12%, but in 2014, it increased to .14% with a further increase to 0.19% and .21% in 2015 and 2016 respectively. Nigeria is the largest economy in Africa. The second largest economy (South Africa) had an MF-GDP ratio of 63.43% in 2016 according to the World Bank. Morocco had 26.42% MF-GDP ratio in 2009, while Mauritius and Egypt had 4.44% (2015) and 4.64% (2009) respectively. More so, India, which considers itself to be in the lower echelon of MF-GDP ratio had 8.85% in 2016 while Malaysia, a developing country like Nigeria had an MF-GDP ratio of 29.14% in 2016.

[ALSO READ: Mutual Fund Prospectus explained – Part 2]

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Great Opportunities

As sad as the above numbers may seem, the implication is that the situation presents significant untapped potential growth for operators in the Nigerian mutual fund industry. There are currently about 90 mutual funds in Nigeria compared to 2,100 in India. There is, therefore, a yawning gap and crying need to deepen mutual funds investment in the country, just like PenCom is making concerted efforts to deepen pension fund coverage.

As a matter of fact, mutual fund operators and regulators should borrow a leaf from PenCom. The situation looks even worse when considering the fact that out of the 90 mutual funds in Nigeria, Stanbic IBTC Money Market Fund and FBN Money Market Fund together command about 62% of the total assets. About 72% of mutual fund assets are in money market funds that require little or no active management. It is time for Nigerian mutual fund managers to get out of the couch and get creative by launching more funds and reaching more investors.

[READ FURTHER: Understanding Mutual Fund Fees: Management Fee]

Technology to the Rescue

There is no doubt that technology has been of immense help in actualising the extent of financial inclusion that presently exists in Nigeria. That same technology should be harnessed and utilised towards the furtherance of knowledge as well as the creation of interest in mutual funds.

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Lack of Transparency is the bane of mutual funds

The damage that the lack of transparency in mutual funds is doing to the industry cannot be overemphasized. For instance, Nigerian mutual funds are very opaque. Daily prices are hard to come by, factsheets are nowhere to be found, fund performance information is missing in action, investors are not sure of what their funds are holding or investing in, neither are the investors sure of the expense ratio of their funds.

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In addition to that, the lack of financial products for the mutual funds to invest has resulted in the lack of diversification, which is the hallmark of mutual fund investments. Different mutual funds in Nigeria are so correlated with each other, such that investing in multiple mutual funds to achieve the desired level of diversification leads to increased concentration risk.

High correlation and over concentration has the effect of magnifying losses whenever they occur, which in turn may dissuade investors from investing in mutual funds. Fund managers should begin to look outside Nigeria into foreign investments to broaden their financial product choices and achieve international diversification.

Investor Education Is Necessary

Many people in Nigeria still do not understand how mutual funds work and how they can be used for financial and investment planning. Fund managers and the Government should find a way to educate Nigerians on this financial product with a view to increasing participation.

READ THIS: These two mutual funds will pay dividends to its investors

Uchenna Ndimele is the President of Quantitative Financial Analytics Ltd. MutualfundsAfrica.com and mutualfundsnigeria.com (both Quantitative Financial Analytics company website) is a leader in supplying mutual fund information, analysis, and commentary on African mutual funds. We provide reliable fund data; and ratings information that will add value to fund managers, the media, individual investors and investment clubs.

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Debt Securities

United Capital Plc raises N15 billion through Commercial Paper

United Capital Plc. has successfully raised the sum of N15billion in its recently issued Series 3 Commercial Paper.

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Commercial paper, United Capital Asset Management explains mutual funds’ positive performance

United Capital Plc. has announced that it has successfully raised the sum of N15billion in its recently issued Series 3 Commercial Paper (‘’CP’’) under a N20billion programme registered with the FMDQ Securities Exchange.

This is according to a disclosure signed by the firm’s Secretary, Leo Okafor, and sent to the Nigerian Stock Exchange market.

READ: United Capital Plc releases H2 2020 Outlook report titled “Up In The Air”

The recent corporate action is sequel to successfully raising the sum of N5.3 billion in April 2020, through a debut Series 1&2 Commercial Paper issuance.

READ: CardinalStone’s Debut Commercial Paper Issuance records 148% subscription

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What you should know

  • The Series 3 issuance with a maturity period of 270 days was issued at a yield of 1.26% and had a subscription of circa 112% with firm commitments from a pool of institutional investors, particularly Asset Managers.
  • This issuance set another ground breaking record in the Nigerian Capital Markets, being the lowest yield on record for a 270-day CP issuance by a nonbank issuer.
  • FSDH Capital Limited, United Capital Plc, and UCML Capital Limited, acted as arrangers to the transaction.
  • According to Investopedia, Commercial paper is a commonly used type of unsecured, short-term debt instrument issued by corporations, typically used for the financing of payroll, accounts payable and inventories, and meeting other short-term liabilities.

(READ MORE: Zenith Bank discloses projections following release of CBN’s latest Treasury Bills calender)

  • Maturities on commercial paper typically last several days, and rarely range longer than 270 days. In addition, Commercial paper is usually issued at a discount from face value and reflects prevailing market interest rates.

READ: Dangote Cement’s N100 billion CP admitted on FMDQ Securities Exchange

What they are saying

Commenting on the recent development, the Group Chief Executive Officer, Mr. Peter Ashade said: “The commercial paper issuance is in line with our bid to diversify our funding sources, strengthen our capital base and intensify our strategic initiatives aimed at providing innovative financing solutions to our clients.”

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Debt Securities

N200 billion Unclaimed Dividend: Securities dealers reject FG’s plan to manage fund

ASHON has rejected plans by the Federal Government of Nigeria to manage the N200 million unclaimed dividends.

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Some capital market experts, represented by the Chairman of the Association of Securities Dealing Houses of Nigeria, have rejected plans by the Federal Government of Nigeria to manage unclaimed dividends – which is projected to hit N200bn by the end of this year, according to a report by Punch.

The Chairman, Association of Securities Dealing Houses of Nigeria, Onyenwechukwu Ezeagu, explained that capital market regulators and operators had leveraged technology to put in place many initiatives to address the issue of unclaimed dividends. Some of these initiatives include de-materialization of shares, which entails upload of quoted companies share in the Central Securities Clearing System for ease of reconciliation, adoption of e-dividend and e-mandate, consolidation of multiple accounts, identity management engagements, and introduction of electronic Initial Public Offering.

(READ MORE: Nigeria needs $5billion for National Broadband Plan – Chairman, BISC)

What they are saying

Commenting on the recent development, Mr. Ezeagu said, “Generally, the incentives for savers and capital providers in the capital market is the expectation of dividends and capital appreciation.

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It is, therefore, our considered view that the proposed legislation, if passed, will be a great disincentive to savings, long-term capital mobilization, and serious disruption of the Nigerian economy, since it will take away the only expectation of investors in the market.”

Corroborating him, the President, Chartered Institute of Stockbrokers, Mr. Olatunde Amolegbe, said the Securities and Exchange Commission would always ensure the transfer of unclaimed dividends to the capital reserves of the company for restricted utilization, such as capital expansion and issuance of bonus shares to the company’s shareholders.

What you should know

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Nairametrics had earlier reported that some law makers (Reps) raised alarm over N200 billion unclaimed dividends in 2020. In lieu of this perceived need, a proposal for the creation of an unclaimed dividend and utilized bank balance trust fund was emphasized in the 2020 Finance Bill — wherein, dividends declared and unclaimed would be warehoused and owed as a perpetual debt to shareholders.

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Debt Securities

Chapel Hill Denham Nigeria infrastructure debt fund offers up to N20.2 billion

A leading Nigerian investment bank announced Chapel Hill Denham Nigeria Infrastructure Debt Fund Series 7 Offer of up to N20.24 Billion

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Crises also create opportunities” –Chapel Hill Denham’s CEO on COVID-19

Chapel Hill Denham Advisory Limited and Chapel Hill Denham Management Limited announced the opening of Chapel Hill Denham Nigeria Infrastructure Debt Fund Series 7 Offer of up to N20.24 billion under the CHD NIDF’s N200 billion Issuance Programme.

READ: NSIA to invest $5 million in Chapel Hill Infrastructure Fund

What you should know

The proceeds from the offer will be applied towards infrastructure loans approved by the fund manager’s investment committee.

  • It also disclosed that African Development Bank (AfDB), following its announcement in October 2018 to invest in the NIDF, will be committing the Naira equivalent of USD$10 million to the series 7 offer.
  • AfDB’s commitment to the NIDF was on the back of a detailed due diligence and review process undertaken by a multi-disciplinary team of AfDB experts.

READ: Top 10 Stockbroking firms trade shares worth N138.1 billion in January 

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In the current volatile yield environment, the NIDF still remains a compelling investment outlet, both from a total return and cash yield perspective.

With net assets in excess of N58.6 billion, the Fund continues to deliver consistent and predictable returns, along with principal preservation to investors.

What this means

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The cash yield generated by the CHD NIDF has consistently been above the 10-yr FGN. Since its inception in June 2017, the fund has delivered a total return of 82.3% (assuming the cash distributions were reinvested). Total returns for the trailing twelve months (up to September 2020) was 12.4%.

READ: Nigerian mutual funds made an estimated N1.9 billion gain in 2018

Highlights of the Chapel Hill Denham Nigeria Infrastructure Debt Fund include:

  • Entity: Chapel Hill Denham Nigeria Infrastructure Debt Fund
  • Fund Manager: Chapel Hill Denham Management Limited
  • Structure: Close-ended Unit Trust, regulated by the Nigerian Securities & Exchange Commission. Compliant with PENCOM Investment Guidelines and SEC Rules on Infrastructure Funds.
  • Program: ₦200 Billion under which the Units will be issued from time to time
  • Series: 7 Offer
  • Size: Up to ₦20.24 billion
  • Offer: Price ₦109. 58 per unit
  • Offer: Units 184,740,440 units
  • Minimum Subscription: 100,000 units
  • Offer: Open Date November 16, 2020
  • Offer: Close Date December 9, 2020
  • Listing: FMDQ-OTC

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